Some Thoughts on Selling BMWs in a Hypothetical Town

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Some musings inspired by Mark Birch’s quote from Rick Webb’s post:

Rick Webb wrote: Pay or wait. It’s not that hard. Or go to a friend’s house. If you’d gladly pay for it, you would. Your hand is not being forced, you are being given consumption choices. Why is it their job to give you exactly the choice you want, exactly, when others are perfectly happy to pay a higher price for that? It’s like saying I should get a BMW for free because I want it for free. I’d pay for it, but I wouldn’t pay $50k for it. Well, other people will, and they are setting the price, not you. 

While I agree that it’s entirely up to HBO to charge what they want and distribute how they see fit, I also think that going with the “I want a free BMW” comparison is misleading, and misses some important context.

Let’s try this formulation for buying a BMW in a hypothetical town:

You want this year’s $50k BMW, but you can only buy one now if you lease a fleet of cars (mostly Chevy Aveos and Lincoln MKTs) from a specific dealership, at an annual cost of $800k.

It also happens that there’s a neighborhood in your town — down by the docks, probably — where an infinite number of BMWs are parked, unlocked, and with the keys in the ignition.

It’s a kind of sketchy neighborhood, and every once in a while the cops will give someone a ticket for taking one of those BMWs, but for the most part, right or wrong, you can just drive one away without anyone ever noticing.

There are a few additional things to know about this hypothetical town:

  1. There are still plenty of people paying that $800k for the fleet; some pay because that’s how they’ve always gotten cars, and others because they actually use all those cars once in a while. BMW and the dealership are making good money.
  2. BMW can’t make those cars down by the docks stop appearing. They’ve tried, but no matter how many they tow away, there are still an infinite number left.
  3. A lot of people don’t really like going down to the docks for a BMW. The directions for getting there can be confusing, there are a lot of hookers and con artists hanging around, and it is, after all, illegal to take those cars.
  4. There are an increasing number of people complaining to BMW about the arrangement with the dealership; these people love the BMWs, but really have no use for the other cars that they’re paying for.
  5. There are new dealerships popping up around town that would love to sell BMWs, maybe without the whole fleet thing. They don’t have the number of customers that the fleet dealership does, and can’t offer BMW the same kind of money, but they’re out there nonetheless.

The question for BMW, then, isn’t whether they can sell cars at the price and on the terms that they choose (of course they can), but whether it is to their own benefit in the long term to keep the current arrangement with their current dealership in light of the changing situation in town.

Yes, BMW is making good money from the status quo, but that neighborhood by the docks and those new dealerships just showed up rather recently. Will that $800k lease (only a small part of which goes to BMW, remember) still look as appealing to the townspeople in another couple of years? Is what’s best for the dealership necessarily what’s best for BMW?